Anat Admati on Financial Fragility, Accountability, and the Future of Capitalism

Welcome to The Puck, Venture Capital and Beyond, a show that examines the changing landscape of our world. Before we dive in, a quick word about who I am and why we're here. I'm Jim Bier, corporate lawyer and restructuring professional. I've spent the last two decades helping companies navigate their toughest transitions. And about eight years ago, I found myself having fascinating conversations with clients and friends about everything from venture capital to the broader shifts happening in our economy and society.

Those discussions were simply too good, so the puck was born. Now while we started on venture capital, hence the podcast name, the Puck Venture Capital and Beyond, We've naturally evolved to focus more on the and beyond portion of the title. Today, we explore how business intersects with the bigger forces shaping our world. I still run my restructuring practice by day, but now I get to host these conversations by night. It has become one of the most rewarding parts of my life.

Today's guest continues that tradition. You have a group of people who wanna take the anger and say it's all the government's fault. Now there's enough blame on the government to go around, but that's when it gets really confusing because the way they took that narrative that the government is responsible for everything bad is that the government should get out of the way. We want no government, and that is very dangerous. Today on the show, I'm joined by Anat Admati, a Stanford professor, a fierce advocate for systematic financial reform, and one of the most courageous thinkers on corporate governance and the fragility of modern capitalism.

Anat has spent her career challenging entrenched interests and pushing for a more transparent, accountable financial system, not through abstract ethics, but by focusing on rules, collective action, and law. We'll talk about everything from shadow banking and crypto to the need for character in capitalism, and the uncomfortable truth that sometimes it takes a crisis to bring real change. We'll also touch on our shared Jewish roots, the importance of honest dialogue across disciplines, and what it means to build a community of people who are willing to speak hard truths. This is a conversation about integrity, institutions, and the future of our financial system. So let's get to it.

Anat Admati, welcome to the Puck. Thank you. So for our listeners who may not be familiar with your work, can you just take a moment and tell us a little bit about yourself? So depending on where you wanna start, maybe we just start with the fact that I got a job at Stanford Business School, out of PhD program at Yale. And I was kind of looking for my way around a few parts of the, you know, economics related fields and, landed in in in graduate school already, but then again here in the finance group.

So I'm teaching, you know, finance and doing research in what's considered sort of financial economics, theoretical work that ended up being first on market microstructure, market trading processes, and then increasingly on sort of corporate governance as narrowly defined as, you know, how do you get the managers to do what the shareholders want basically, which is what they obsess over in this sort of in corporate law and, you know, securities law, giving information to investors all between within the corporation. And there are a lot of interesting questions there. But then the financial crisis happened and that changed the trajectory of both my set of activities, as well as my research and writing and style of writing and everything about what I'm doing, really. So it was a life changing event for me even though I was not personally that affected by the financial crisis. I didn't lose my job, didn't lose my house, you know, etcetera.

Remained here at Stanford with tenure, all of that. But I started looking into the financial system and especially banking at the time, and why it is that we needed bailouts, and why was the whole system collapsing, and it because it was something that wasn't kinda supposed to happen. I was telling my students how wonderful the markets are and how they're helping us spread the risk and fund the innovations and, you know, venture capital, whatever. Anyway, and the more I dug into banking, the more disturbing what I found was. So I met the politics, I met the law, I realized that corporate governance, the way I was looking at it, it was only a tiny piece of what was actually going on in the world.

And so it led me to completely different areas of, of interest, completely different disciplines than financial economics. And so the rest sort of is that I started advocating for specific policy changes. I saw how hard it was to get stuff that powerful people don't want, how bad policies can remain and persist. And then I dug more into, you know, the implications of all of that, which include, you know, what I now call profitable misconduct, being above the law, the way people use their power, on and on, that is playing out in the broader democracy. So let's pick up on that.

You seem like you've made it a major part of your life work since the financial crisis to really focus on what went wrong and how to correct it. And as we're sitting here in 2025 and we listen to the pundits, we, according to a lot of people, are on the verge of another financial panic. And the dollar's down, and people are very concerned about tariffs, and consumer sentiment is the lowest it's been in quite some time. How do you feel about your life's work and where we are as a country right now? I feel anxious and scared.

I think there are various signs, that this fragile system we've created and that's built on a lot of assumptions might crack again and, you know, and where exactly how it's gonna exactly play out is not clear right now, but that's what happens with sort of fragile systems that you start disrupting them, and we have a lot of disruptions right now. The global financial system, the global economic system, all the stuff that we've lived with and assumed is working out reasonably okay. Obviously, disturbed a little by the pandemic along the way. And so, yes, I feel that my work is more relevant than ever, that everything I was afraid of, a lot of it is looking ever more, you know, scary. And, I'm not sure where where it's going.

So let's let's break that down. I mean, you as a Stanford professor and as somebody who's an expert in this matter use the word scared and and and and afraid right now. You teach young people. I like to speak to young people. From my perspective, it it it seems to me our job is to try to give them hope and and a sense of possibility.

And I guess when we're looking at where we are today and you dig deep, where do we go from here? Well, the only hopeful way I go is that we get shaken out of our complacency and and we do especially, you know, reflect on our assumptions. And I think that's really key because that's what I felt was really revealing to me once I dropped assumptions and looked into really what's going on. Now, you know, people have conspiracy theories and they decide on what they think is going on. And I don't think that's I think you really ought to look for something that you might call truth.

I think there exists truth. You know, I'm an economist, so I think there's certain economic truths, but again, you know, there it's affected by a lot of what we call in economics frictions, you know, ways in which the different people know different things, especially different people are able to exert power in different points of the system and take advantage of certain sort of imperfections in the system. And once we understand that, then we know what the agenda is. We know where the problem is. My fear right now is exactly that people are diverted from what is really going on.

And, these diversion tactics are very dangerous. And so my hope is the way I handle it, at least in my teaching and in my writing and in my communication, including our very conversation here, is to try to actually give an understanding of at least pieces of it that I understand. So I agree with you that we should try to arrive at an element of truth. And I also, you know, agree with you that it's hard to find that truth at a time when people have such low trust in institutions. I know you've referred to our financial system as being fragile, but at a time when we hear people say we're the strongest economy in the world, we're the reserve currency, We're gonna win this trade war because no one can stand up to The United States.

China won't be able to do it. We are America after all, and we are the fiat currency for the world. Having said all that, what is the truth? What is the fragility in our financial system? And what is the truth that we need to get to at this point?

So the truth is that we're not as dominant as we think we are. We are very lucky that, we do have what still is the reserve currency and historically, at least in the last, you know, number of decades, people have felt our, you know, government bonds, etcetera, are the safest asset in the world, etcetera. But when I was asked, you know, what's a safe asset after the financial crisis, I said, it's the first dollar that Apple borrows that's safe, you know, as long as they don't slip down to a huge amount of borrowing and and and and fall apart. But, you know, I meant to illustrate the fragility that debt creates of all kinds, even government debt sometimes depend on the currency that you borrow at. So I think that the financial crisis actually ended up strengthening China and looking and making the democracies look not so strong.

So I think we our position in the world has weakened in the last fifteen years, and I think it certainly took a big beating, you know, in the last hundred days. So I wouldn't take for granted that we can win every every economic war. You know, we have a strong army, but we also have a regime that doesn't wanna get that that army too involved in things. So, you know, nationalist agenda, not interventionist agenda, and some of it is just tragic on the front of, you know, basic values. You know, are we going to let, what's our line?

We intervened in the second World War, and I think that was a worthy intervention, in a really horrendous regime. And, you know, we see violent wars, you know, be coming back, especially by Russia. And, us not, really knowing which is the right side here is worrisome. So I think in the in in America and the world, on the geopolitics is one thing, and the economics, they are related. And I think that, you know, the the shaking up of everything that's going on is not necessarily gonna end well for us.

Okay. So again, let's let's stay with that. You you mentioned that it was this since the financial crisis, it's quote been better for China. But but when we look at worldwide debt levels, China's got a lot of debt as well, and they've had this huge problem with the real estate segment, for instance. Yeah.

So is it that China has these built in advantages that that we don't have? What what do you see being kind of the I mean, if we're all challenged by debt, what is it that makes China unique, so to speak? No. I mean, you're right. You're right very much that China is plagued with, with the debt.

Private debt and and and and other. I think the difference is they have a more effective government. So right at the moment, I think we do not have an effective government, never mind the sort of democracy issues. They certainly are not democratic, very much non democratic, but they have competent people and very shrewd people. In their government and in their engagement with the world.

They use their power quite effectively for them. To the extent that we are at war with China on various front, I I'm not sure we're doing the best we can in that economic war. Right now we are, you know, dropping things like, you know, cybersecurity, protections, basic things of that sort. We are allowing Russia to meddle with all kinds of things, including our own politics, and those are very worrisome things. You're right that China has its own its own fragilities, and sometimes I mean, they seem sometimes similar except for the power of the private sector versus the government.

So I usually think that our private sector is is, accessibly strong sometimes, certainly in the financial sector, over the government and ends up controlling the whole thing. And so where the power should reside ultimately is it's not clear, but at least the people in power should be really competent when it comes to also the rest of society. I think our inequality is is alarming. So I think a lot of people with narrow objectives across the government and the private sector are are not truly listening to what, what is animating low income people, etcetera. And I think we we should take that seriously.

You know, the complaint is about Democrats, and I agree with that. But, you know, the MAGA movement found a way to reach out to people and give themselves a lot of leeway right now. We'll see how that plays out. And if we go back though for many, many years going back to Bill Clinton, we we have not had a balanced budget in in in quite some time. And and Democrats and Republicans alike have run up our national debt more than another $20,000,000,000,000.

And so Yeah. It it seems to me there's blame to go around. And so when you're educating young people and you're looking at the challenges we have today, income inequality, too much debt, we're not growing that fast, and we're looking at a world where there's competition, and we're trying to compete with China. We we see, as you said, the the things coming out of Washington, big things like tariffs and and, again, trying to bring back manufacturing with with a stick, so to speak. We saw Doge try to get spending down, but it seems to have been at least at this point unsuccessful.

What should we be doing to address these issues? I don't you know, I'm not a macroeconomy. So one thing I try to really stay away with is really macroeconomist, and I'm afraid we kinda sleep too much into it. But I'll speak to you as a microeconomist, as a financial economist. You know, I'm not as concerned with government deficits.

I mean, I'm not, you know, modern monetary policy thinking that we can spend infinite finance professor is you wanna invest in what's called positive net present value project, however you fund them. And so the key is to get more than what you invested to have net benefit. So the key is to invest wisely, you know, taxpayer money and our own money. And so, the problem is not necessarily the deficit, the question is exactly how how it got distributed, how the economy as a whole is being productive or not. You could, you know, shift, you know, trade is a good thing in general.

We don't have a balance of payments with, you know, that's a crazy whole thing about the tariffs. You know, we don't have a balance of credit with the with the people we buy stuff from. I mean, that's crazy To have that logic that you need to have some kind of a balanced payment, with, with with everybody in in the world, you know, you produce to your comparative advantage and other people produce to their comparative advantage and we have trade. That's true within a country and across countries to a point. Now what happens to manufacturing specifically?

I don't know how much manufacturing we we we can bring back. I think basically, you know, we we need to invest in education more. We need I mean, there's all these things about what we haven't done, and where we're moving in the wrong direction on investing. I mean, you know, even when you look at government deficits, how is it a positive thing to to dismantle the IRS? How can that possibly be a good investment?

IRS is one of the places where, you know, you get a lot of bang for the buck by investing in in a inappropriate instead, the IRS spends a lot of resources on on poor people and very little resources on where their money actually is, which is with with, you know, with, you know, with with the corporations sometimes and with rich people who hardly pay any taxes, both because of the code and because of other techniques. So anyway so just in general, what I'm saying is I don't think there's a cut and dry, you know, the deficit should be this way. I think it's about the nature of investments in the private sector and the government and whether there are appropriate investments for, you know, for society as a whole. So does that imply that you don't think we are as a country, whether or not it's private or public spending this debt in the right manner? And if if that's true, how should we be spending it and and and why are we in the situation we're in?

So we haven't really gotten to my main point about the fragility, and and but you've brought up that a few times. So let me just say, the fragility that I have been writing about is is all in the private sector, and especially in corporations and especially in financial corporations. One of the most self defeating shoot yourself in the foot policy that somehow the whole world has adopted is, tax subsidies for corporate debt. We have them for mortgages, that's bad too. In other words, people ought to buy houses, but why with debt so much?

It's fine to even subsidize home ownership if we decide that needs subsidy, but why are we always subsidizing private debt to get things done? Including student loans, why is education being funded by digging people into this kind of debt hole for bad education sometimes? So a lot of policies are directed at at, let them eat credit kind of thing. You know, in other words, the word credit being a positive word in the language, you know, and you somewhat portrayed as, you know, I'll give you money, you owe me money, and that's somehow good as a way to fund things. You know, in the venture capital sector, which you, right, you know, you speak to, you know, most of the funding is equity type funding.

Of course, that can go down the drain if you make stupid investments like in, you know, FTX or in in Theranos or whatever. So you have to do the due diligence on any kind of spending by why we're encouraging leverage debt, private debt is be it's the stupidest thing, that we could in principle reverse, which is so baked into the system that you can have many committees recommending that we stop favoring debt over equity for corporate funding, and yet, you know, we still have that policy. So the the the problem of excessive borrowing is very severe in banking because my research, on corporate, funding on corporate leverages shows how addictive leverage at high quantity at high level is, and there's no no exhibit there better than banks that live on the kind of little equity that nobody in the private sector with no regulation lives on. So the market is telling corporations, despite the tax subsidy, that it's comfortable to have the flexibility of equity, to to invest and and not have the debt overhang that you get. But banks live banks live under that overhang that nobody would choose to live on because their burden of debt is not felt by them because of all the safety nets that we gave them.

So basically, the economics of bank funding is such that, they don't realize how indebted they are and how unhealthy that is for any corporation. So that's just one piece that is a matter of simple teaching. You know, I wrote a book that explains everything in completely accessible terms to people who never took any finance course or or or not even economists, who can understand where we went wrong on on the most basic of banking, regulations that we already have but just doing very poorly. So, you know, again, we're overspending on the complicated regulations and we're for failing to to do simple things that could work better. So so, again, we're in in search of this truth.

I'm reminded of a conversation I had on the Puck with Chris Leonard about Tom Honeck and Ben Bernanke Yep. Where Yep. The discussion was after the crisis that we could grow the economy in in one of two ways. We could either get fiscal spending, Keynesian economics to step in when the private sector failed to act. Mhmm.

And we were in the deadlock in congress where the legislative branch wasn't doing that. So Ben Bernanke said, I'm gonna use the tools of monetary finance to stimulate the economy, and the way to do that is to take interest rates down to zero and borrow, baby, borrow. And we tried to get banks to lend. We took interest rates down and begged the banks to lend, and they wouldn't lend. It was the PPP program.

It was the SBA programs where we guaranteed all these loans Yeah. Where we basically made it completely safe for these banks to lend because we essentially have a government put you know, the the Fed put, they say. Yeah. Now we're at 36 plus trillion dollars of public debt, but we beg the private sector to take on this debt because, essentially, the legislature the the Keynesian economic approach wasn't working. You know?

And so so how do we get at the truth, and then how do we figure out a path forward? So let me explain about the lending. Banks don't lend because they're even the regulation distorts them away from lending. So what we explain in the book is the way the regulation works, it rewards them for safe things or very risky things, but not for the things that we really need them to do. We just made them unattractive.

So I am completely into the incentives, and I totally understand how things may are made, you know, attractive or not attractive. First of all, when you have, high debt, you get into this under investment overhang problem. Under investment, due to debt overhang means that when you have a lot of debt, you need enough upside to invest in anything. So there are two ways to invest, you get a very low spread, but you're investing supposedly safe things or things that the regulation views as safe like other men bonds. The small business lending that we need to do, they just don't wanna do it.

It's too boring. It's too much work. It's too little return. That's the problem. And we and they get the sort of risk weight on it, you know, for the regulation that they actually need to back it up, but God forbid, you know, 8% equity funding.

But they can do a lot better and economize on equity ever more if they manipulate their investments to kind of either go for the, you know, high bank for the buck and trading and and and derivatives and other things, or government bonds. And the government, the regulations encourage them to invest in government bonds. So the whole thing between the Fed buying government bonds and the banks buying government bonds is encouraging lending to governments, over lending to businesses. So the underlying cause is still distorted, bad regulation and and excessive boring. So everything bad about banking is just explained by these two things.

They have too much debt and they're badly regulated. That's it. The regulation is fixable. And part of the way that it should be fixed is to reduce the extent of borrowing by bank by banks reliance on on debt over equity. And that's basically what I've devoted years of my life to advocating.

They keep saying, oh, it's expensive, it's expensive. And it's expensive only to the extent that we pull away subsidies that they love. And that's as if saying, you know, it's expensive for me if I if you don't allow me to steal your money. You know, it's gonna be expensive for me to be unable to steal your money or to live off of your subsidies. I love my life right now, and I'm gonna threaten with all kinds of things if you take away my privileges.

And in fact, what they're threatening, they're not doing anyway, like lending to businesses. So the PPP came with COVID, you know, this, this, payment protection program, and that was also, you know, highly beneficial to the banks. They didn't have to take any risk. They only have to pass the money that was forgivable and guaranteed by the government. But, you know, we guarantee mortgages as well.

They'll do the mortgages if we guarantee them. So if you take the risk away into the public, then they'll do what you want. But that's the point is, are they able to invest their own money in something risky just like venture capitalists do? You know, they don't want to. They only wanna take risk if, you know, if if they can have almost no money of their own and if they can keep rolling their dead day to day without anybody noticing that they are virtually insolvent at all times.

So it seems like you've got some regulatory issues you'd like to address, but you also have a situation where the government, because it needs to borrow so much and it needs somebody to buy its t bills, that there's this essentially Symbiosis. Bias where the government wants the banks to buy its t bill. Oh, yeah. No. The the government is a player in the financial system, and it favors its own securities.

So first of all, I guess, if you see this playing out, do you you do you see us heading into a recession? I know I know I I'm not the only reason I'm trying to push you into the macro for a second is I didn't wanna come back from that and say, okay. Now we've got a little bit of a crisis, and maybe people are gonna be willing to listen. Because if I'm not mistaken, the things that needed to really happen after the financial crisis did not happen. Because it seems to me we're more exposed now than we were back then.

So the problem is that the the the mood and the way the direction so let me let me go back to the financial crisis and and sort of speak to that and to where we are today. After the financial crisis, there was a lot of public anger, but the anger was taken kind of in split two two ways. One was the sort of Bernie Sanders anger, occupy Wall Street. So people went and and and built tents and lived, you know, complaining about bailouts and inequality. 1%, all of that.

So there was a bubbling anger over the the extreme ways of inequality that only got worse and COVID even made worse. Okay? So we have that as a fundamental problem problem in society. And the other direction was actually cynically used by sort of libertarian types, and that was the Tea Party. So in 2010, you see that or 09/10, you see that split between people who were just going to the basic anger on inequality, but unsure how to connect it to the financial crisis quite, except through the hated bailouts that everybody kinda hated.

But then you have the a a a group of people who wanna take the anger and say it's all the government's fault. Now there's enough blame on the government to go around, but that's when it gets really confusing. Because the way they took that narrative that the government is responsible for everything bad, is that the government should get out of the way. And they were taking it into, you know, we want no government. And that is very dangerous.

That latter attitude, which is government is evil therefore we don't need government, that's extremely dangerous. And that's where it was taken, and that's where it's taken now to the, you know, Doge and, you know, all of that. Government is bad. Now the government has to be efficient, no question about it. But we now have a, you know, evermore, of a potentially an oligarchy and corruption in government more than before.

It's not in necessarily the bureaucracy and bureaucracy had enough flaws to maybe need to to to to make it better. And certainly in my area that I saw that, it's like the annoying mix of both complex and costly and ineffective regulation. So it's that and, you know, Tom Honig is my best friend in this space, and we've collaborated on many battles, along along the way and created bipartisan bills and all kinds of things, you know, Sherrod Brown and David Vitter, things like that back in 2013. So it's completely bipartisan that, you know, you you that you shouldn't want corruption and that government needs to do basic things like rules of the game. You know, do we want fraud?

Do we want bribes? Do we want money laundering? Just go very basic. You know, by now, we we have, you know, we we law enforcement has been politicized many much more than whatever Donald Trump is complaining about. And meanwhile, we dropped all anti corruption efforts.

So blaming the government as the sole source of this from your perspective doesn't make sense. And I would add to that It makes sense only to the extent that the government allowed certain private sector to take advantage. And I was gonna add on to that. To me, the government's just a reflection of us. It's it's They are elected officials.

There's an expression, you get the government you deserve. The people we elect, the way in which they are accountable, it's all based on our ethics. And so, there's a lot of discussion going on right now about moving away from the church, moving away from Judeo Christian values, the notion of sacrifice. You know, John Kennedy, ask not what your country can do for you, but ask what you can do for your country. The sense of community, the sense of love your neighbor as yourself, the idea of the tortoise and the hare, moderation.

A lot of the values that came out of the Greatest Generation and the Depression, it seems like we kind of left a lot of those values behind. And and do we need a return, a resurgent to some of those kind of Midwestern Kansas Tom Honek values? Oh, definitely. I mean, I think one of the, you know, at the ground level, one of the really dismaying things is the kind of cruelty that the kind of meanness that has taken over. Elon Musk saying that empathy is the biggest problem that we have in Western democracies.

I mean, that is just I mean, it's tragic for one thing to even say that. But, you know, personally, on my core values, offended by this kind of talk. I think, you know, but, you know, the the nationalistic narrative is America first, right? I mean, that's what MAGA supposedly is. So, but the question is, you know, to to whom do you have empathy?

Only to people who agree with you? Are you not engaging with people who disagree with you because you call them names? So this whole fragmentation of, you know, the discourse is is very is very bad for for our ability to get a system that that that works. You know, you could say, do people want democracies? Is the democracy working for us?

Do you want an autocrat, you know, in charge? You know, strong men, usually it's men, with a lot of executive power versus this, you know, some kind of a distribution of power and how the distribution of power actually comes into as governance system where people with power are accountable, on and on and on. So it's complicated to put together, but, you know, we had a set of norms and a set of rules and somehow, between social media and other confusions and diversions, it got lost. So it's it's that part is sad. And what I am hoping to be able to achieve is to get through that noise and through the poison of it and and engage on on real things, including real corruption of people on both sides of the aisle.

Makes sense. And in terms of trying to help people on both sides and going back to what you said about empathy, I understand the importance of empathy. But you're also talking about the notion of banks making loans that can be paid off. And when mistakes are made, that there's a cost to that. How do you balance empathy with consequences?

The people right now, the, you know, the there's no empathy and people who take advantage have no Let me interrupt for a second because I I I I'm I'm I wanna stay on some for a second in terms of when you say there's no empathy. I believe $37,000,000,000,000 of debt was spent a lot because of empathy. And what do I mean by that? We we don't want people to go out of business. We don't want people to feel pain.

We wanna forgive student loans. We wanna forgive business loans. We wanna make SBA loans. We wanna bail out I mean, I think that that some of this is the fact that we are enabling us. Okay.

No. No. No. I I think I think I'm too impacted by by very minute by the very minute. I agree.

Here's where the empathy comes in. You you start being empathetic when in a crisis, you you're you're generally empathetic. Not not everybody all the time, but, you know, I mean, because Donald Trump will even use crisis to be political, like the LA fires or whatever. But generally, you're right. In a crisis, you know, they throw they throw things into the system and generally, yeah, I think, you know, you come to relieve student debt because too much of it was made.

And so but that's why I emphasized the ex ante policy of funding so much with debt, so then you are in a position of of having to forgive people who got into too much debt. But then you're also forgiving banks that didn't have to go to too much debt. They just wanted to and got away with it. So, the problem is just what's appropriate accountability. So, I think, you know, corporations should definitely be more on their own.

I think that people should be helped, in a way that makes sense by not by digging them into debt as much, but certainly in the way that, you know, when Elizabeth Warren checked on personal bankruptcy wasn't the case that people were reckless that most personal bankruptcies were happening because of, you know, shocks to healthcare costs or other things like that. So, you know, you we may wanna, you know, our healthcare system is sick, we didn't even get to that. I think it's a big competition between the financial sector or banking sector and the healthcare sector in this country for being extraordinarily unhealthy from society's perspective and the outcome being, you know, a lot of extraction by few and leaving the rest in a bad system. So I take everything. I want accountability as appropriate.

I want accountability, also political accountability. And the problem is there's too much deniability and too much narratives that protect people from what they did. I mean, Ben Bernanke was my colleague and Ben Bernanke is an academic I know well. But Ben Bernanke made a lot of mistakes, especially especially on the part that I was most interested in, which is not monetary policy but regulation. He really messed up, admitting that we have a too big to fail problem and failing to do what the law asked him to do about it in Dodd Frank Act.

So there was just a lot of, just a lot of ineffective a lot of ineffective rules that are not placing the right accountability on people, a a justice system that doesn't, work that well. That's what I'm writing about right now. So I think there's a lot of governance issues basically that are at the base level of of the combination of empathy and accountability that you mentioned. I think it's possible to have appropriate social policies that do not have as many people in this country live so so at the edge of of of existence and being unproductive because of of basic life anxieties. We have too many for a rich country, we have too many people who are, you know, unable to to to provide for themselves and we have to wonder why that is and why we don't have, you know, anything resembling equal opportunities, you know, and then not equal everything.

I'm not, you know, and I'm not a communist, you know, or whatever. You know? I'm I'm I'm an economist. I understand market forces. I'm for private sector, all of these things.

But we certainly have gone too far, and we have to make sure that that people have opportunities to, to to learn, that we have infrastructure, the basic things that governments have to provide, and we have to, we have to hold, you know, people and institutions accountable for overstepping their power. So you mentioned that you're a fan of Tom Hoenig, and I believe he believes that once you started quantitative easing and low interest rates and running up debt like we've done, that there was no easy way to get away from that. And it's been rumored that Jay Powell at one point said, you know, how do you have a soft landing? You know, it's a little like landing in a seven forty seven on an aircraft carrier. And I used to think, oh, well, that's a difficult thing to do.

And then I realized the the real answer is you don't. And and that means that there is gonna be somewhat of a, quote, crash at some point. And a crash doesn't mean the world comes to an end. But let let's say history rhymes, and let's say we have some banks and some non regulated banks and some junk bonds all blow, and we're in a situation where the government is being called to step in again, and we're in this economic mess. What should we do?

Who should we be listening to? And how do we finally, and for once and for all, fix these deep issues that are in in the system? And how do we give young people the hope and the tools so that they can learn from both 2008 and potentially 2025 and '26? How do we help with that plan going forward? So I, you know, I usually don't judge what the government and the central bank do in a sort of acute crisis because it's all about bad outcomes either way.

But, there is certainly a, a way to see the pattern. I mean, if you look at, you know, This Time is Different book that came out, you know, before the financial crisis and was basically saying, look at the entire history of sovereign defaults and banking crisis over eight hundred years or something, or even beyond. The theme was that everybody gets drunk with debt. That was the d theme, including governments and private sector, and that they refuse to see the signs, you know, as we get. So will will next time be different?

That's the question. They're basically, Reinhardt and Rogoff are saying. Now, again, you know, the fiscal, I think is tricky. Private debt is easy, but it requires sometimes rules that actually have you intervene, with private sector institutions like banks and others. So the hope of course is that, you know, I don't, you know, the the first thing about after the financial crisis is, what would it take?

Precisely the question you're asking right now. Will it take another financial many people said, I think it was a certainly a an analysis post crisis that, you know, because Bernanke, referring back to the great depression, opened the spigots as much as he did, that it was sort of not hard enough or not painful enough. And therefore, you know, here we are, didn't solve it. I dreaded, I dreaded thinking that it would have to be worse than that financial crisis, which for many people was bad. But for a lot of people who were part of what happened, they were just fine.

You know, ultimately, if you look at human beings, you know, it's not the people who caused it that really suffered the most, which is the the problem, really. And why, you know, why they sort of, you know, the anger with oligarchy is is is has a point too. So who will, you know, who will suffer exactly and who will be motivated enough to to to dare, to ask why this happened and reflect on their own role in it. You know, people usually deflect the way, you know, even a Kevin Warshall would talk about it. Everybody in Washington wanted to blame somebody else.

And the Fed became the only game in town because it was the one institution that could just do stuff and it has the ability to print money, so it did. And with the dysfunction that you mentioned and all of that. So we have a lot of problems to solve including political dysfunction. And will another crisis shake us into some more focus? We can hope.

I do think that if if some of the basic principles, you know, we can teach, and that's certainly what I'm trying to do here with a set of undergraduates that don't have any background in, necessarily in finance or business or law, is to just give them enough of the elements to understand some of the basic principles of good governance that, you know, we have some wisdom enough to explain it to people in a way that resonates. When you're talking to young people today, how do they view the current situation? I don't know that I talk to I mean, I certainly would talk to very select group of of young people. You know, I have I have children, you know, who are young people, and I talk to Stanford students who are young people, but they are also a verified group. But still, I mean, I think, you know, they're trying to find their way.

I think they, you know, they fall into every potential trap that that everybody else falls into. So, you know, they might fall for, you know, cryptocurrency and things like that. So I I, you know, I I there's no uniform thing. I, you know, I I get the people who who take my class. I talk to some other people, but I don't know that I have a a really good view of young people today.

Well, you mentioned crypto, and young people seem to be fairly heavily invested in crypto. What's what's your view on financial institutions and the role of crypto and shadow banking and all the rest? Oh, I I I mean, shadow banking is banking because a lot of what you call shadow banking goes back to the banks in one way or another if you follow the money. Crypto is, a huge skeptic of crypto. So I just I don't understand the need for more currencies as currencies, means of payment.

We got plenty of currencies and enough trouble with that. We tried over history private money. We tried. It was a there was a before there was a central bank in The US, we had monies issued by banks. You know, we we you know, anybody can can issue an IOU.

That's an IOU for payment. The rest? Meme stock? I mean, it's money laundering, it's fraud, it's, you know, a bubble, it's all of the above. I don't haven't seen the use case.

You can use something within a casino. When you go to Las Vegas, you change your central bank money to chips, and you put them when you play. When you go into a game, virtual game, a video game, you know, there's money off the game. That's fine. You know, if you have, you know, miles or points or something, that's a currency used in that setting.

So we can have lots of means of payment that are good in a particular setting that we can buy things with in a particular setting. But in everyday use to buy, you know, everything, you know, the government accepts the dollar for paying your debt and paying your taxes. The rest is, you know, when a country starts to to accept Bitcoin, I mean, you know, it's been tried too. I don't see the logic of that. The cost of minting it, the stability of it, the the, everything about it doesn't speak to a legitimate payment means.

That's the currency part of it. The rest is, is really in the realm of securities. No matter what the current SEC says, they are claims on something that gives you certain rights, and that is the definition of a security by securities laws. Gary Gensler was right on that. A lot of that is in the market where you can sell things to people.

And then, you know, what it really is worth later is part of some market where somebody will either have to buy it from them or they'll it'll be put in some productive use and they'll get dividends or something from it and be able to sell it. In other words, securities, financial securities, claims on some some future cash flow with some risk. That's security. Calling it different other names is is a game of words. Dressing it up in all kinds of libertarian, democratic thing is a bunch of words.

So I've been around narratives, you know, there's a lot of marketing that comes into these kinds of things. I need to understand what the idea is. We got lots and lots of financial securities. We got lots and lots of currencies. It's hard enough to keep them all stable or reasonable and to prevent fraud of all kinds and, you know, using customers' money for this or that, FTX style, all these things.

People invest in crypto, they're better. Look at the small print is all I can say and see how what they what they investment of real money, central bank money, into something that is in this space, the digital asset space, what they're getting. So you're giving a lot for people to think about, and time is gonna also either prove you right or wrong. And one of the things that people are arguing now is, well, it's it's a store of value. You know, it's like gold.

And we're so worried about inflation, and we're so worried about deficits. And so if we buy Bitcoin, look at Bitcoin, it is a store of value. What do you say to that? It's not it's not store of value. It's just people think it's a hedge against something, gold.

Now the difference between gold and crypto and I understand the notion of gold being a speculative asset or an asset that you think will move against inflation or whatever, you know, because I'm a financial economist. The difference is gold actually has some uses. Right. You know, it's highly valued in India for jewelry and, weddings and things like that. I mean, you know, people like so there is the metal and there is the crypto which has no fundamental underlying value.

Just a bunch of, so yeah. I mean, you know, is it I you know, you can believe in all kinds of things. And, you know, it I don't know how long a a belief like that, how far a belief like that can take you. I like under you know, I like actual productive value to things that I invest in at the bottom of what they are about, and I don't think crypto has that. So time is gonna tell.

I I tend I'll be honest with you. I'm I'm a skeptic as well. I I'm very concerned that if it was a store of value, it would trade in a relative band like gold, and it would go up and down based on people's fear of inflation. And yet, it seems to me it trades like a speculative asset. So I agree with you on the Howey Test and the SEC and and I and and so forth.

And I I guess what I would say to our listeners is that the Puck is here to tell you where the world is going. And if at the end of the day, we balance our budget or we continue to print money without any consequences, and the tariffs bring us nothing but prosperity, and we are chucking and jiving and growing at three or 4% in a year or two, then then we were wrong. On the other hand, if we really get a shellacking here and head into a recession, then maybe the voices of Anat and Tom Honeck and the the people that were here after the crisis before and said, hey. You know, if it's too good to be true, it probably is too good to be true. And we gotta kind of have empathy, but we also have to have practicality and sacrifice and character, then time will tell.

And so I I think, you know, what I'd love to do is have us both put in our calendars April 2 thousand twenty '6 and see where the world is and see where crypto is. And if crypto's in a million dollars, we've got some apologizing to do. I don't know about that. You know, that's not you know, I'm always, I'm always happy to reexamine my views. Yeah.

So I'm not the really, you know, dogmatic about the views. I'm using what I the tools I know, my logic. Right. You know, is the world a place where, you know, the all kinds of weird things happen in the world. I mean Right.

World can live live on beliefs potentially for a long time, bubbles that can last for a long time. Other things can, play out over time. So we'll see in two years whether we think we missed something and don't understand something. But when I say, you know, some crisis will happen or recession, I mean, certainly, I'm not predict I'm not a macroeconomist. So I told you, I can only speak to the fragility of the financial system because I've looked at it, but it doesn't mean it breaks tomorrow.

It it can kick the can down the road for a long, long time. And oftentimes it does. So I don't know what my horizon is or when the next crisis will come. You know, Jamie Dimon told the Financial Crisis Inquiry Commission that he told his daughter when when she asked him, I guess she was a young person, I don't know how old, what a financial crisis is, because she heard in school that there is a thing called financial crisis. He said to her, don't worry, financial crisis is something that happens every, and he said, three, five, seven, or ten years.

So when I was asked to talk about the lessons from the financial crisis in 2018, I said, it's been ten years. That was the outer end that Jamie Dimon said stuff happens. So the only thing we have to ask ourselves is, where will it come from? And we're due for one. Well, COVID came, financial crisis didn't happen because they threw so much money, not at the bank, but indirectly at the banks too.

Because if they didn't throw the money on everybody else, the banks would get in trouble. Instead, they celebrated because lots of bonds were issued. PPP was a windfall for them. Everything that was done to give other people money helped the banks too. So we didn't have that kind of crisis in COVID.

A lot of them would be the same methods we're used to kick the can down the road further. And so we'll see. Yeah. I I I think that's well said. We will see.

And my brother thinks, you know, it's gonna take a long time. I I'm always saying that we're closer. But the one thing that I've observed is that in 2008, I was somewhat caught off guard when the whole world had a housing crisis. I didn't understand it. How can the whole world go through this at the same time?

Yeah. And and this time, what I'm seeing is that the rest of the world is having a bit of a debt crisis and a coming to Jesus, and they're starting to slip into recession. And we, because we are the reserve currency and we have been able to print so much money, we've been able to stave it out longer. And MMT, modern monetary theory, and playing monopoly, it is a game. At the end of the day, if you could figure out a way to distribute cash around 7,000,000,000 people in a way that everyone bought into, you you could keep it going forever.

So I'm not I'm not ruling out that, you know, the dollar is the only game in town, continues to be kind of the main game in town, and that we we continue to benefit from the privilege, that this gives us in terms of our ability to sell our bonds to, not just to American, to the central bank here, the Fed, and to our bank, but also to to a lot of, you know, foreign investors. Although right now, they've they've reduced, as we discussed, their holdings of the those, bonds. So that particular export is also suffering from being less welcome on portfolios of, of others around the globe. So just how much we can maintain and without causing huge inflation and and and then needing to lower interest rates again and and all of that and how you can play that game, I don't know. Yeah.

Well, it it's gonna be interesting because it's one thing when everybody was pulling in the same direction. But now with China and The US pulling in opposite directions, I think it gets much more complicated. Although my brother says, look, what how are we gonna have a recession when we're running $2,000,000,000,000 deficits? You know, meaning the government is spending so much money right now that the the economy is gonna grow. Now, again, it's negative growth in the sense that you're getting poorer because you're increasing your debt fast.

Right. If you have to inflate your way out of debt, that's when Right. That's when it, you know, it becomes recessionary. It's too hard to to do both. Right.

And that's gonna be the challenge for the Fed, you know, potentially in the future. Right. Think of what happened to Liz Truss, that entire episode where they had to step in to basically bail out pension funds even at the same time that they were trying to increase interest rates. And so, you know, you get into these binds, potentially where, you know, you have different forces working on the on on the central bank and and on the authorities. So, you know, we'll just see just how much they can keep this whole thing going.

It's it's definitely scary. When I said I'm scared, I am scared because I think there's unprecedented disruption to the the global system, to geopolitics, and the financial system is sort of a part of of that, that, you know, we somehow need to, not crack or else, you know, things will get even worse. Well, I do like to remind people and and on on, you know, on a on a happy note. I think we both have Jewish heritage, and we are in the year 5785, and the world is still going on. And so I do think it is scary, but I also think that we will survive this.

And there are bumps in the road, but we are a dynamic people, and we are a multicultural democracy that has survived a lot of challenges. And I think with your students and with other young people, the best is yet to come. That's what I'm hoping. So let's, let's let's hope. Yep.

The POC Venture Capital and Beyond is produced by CMVG Advisors. If you enjoyed the conversation today and haven't yet subscribed to our show, you can find us on iTunes, Apple Podcasts, and SoundCloud. Feel free to leave a review while you are there and maybe even a five star rating. Thanks for listening. We'll be back soon with a new episode.